ldcdc said:
Actually, they do lose money when selling .coms for $4.95.
http://ask.metafilter.com/49208/Mater-of-our-own-domain-names
Whether they recoup that loss in subsequent years, is a matter of speculation. Their bet certainly is that they will though.
What i understand of domain names and this industry is that ICANN has allotted different registeries (not registrars) like Verisign for .com and so on. ICANN charges $0.25/yr/domain registered/renewed/transferred.
ICANN is not bothered about anything more than placing the ceiling over domain prices. Registries like Verisign are free to decide the price for domain extensions they handle, just that the price can't cross ceiling decided upon by ICANN and it can not be lower than $0.25/yr/domain, the ICANN fee. If Verisign wants they can sell .com for $0.25 also in a way getting ICANN its fee and themselves saving nothing. Just an example and not practical.
Now as with registry, there are registrars. Like Enom or Directi which act as middle men or agents through which domain extensinos are registered. They offer extensions from different Registries. The price at which they get domain extensions is decided upon by the funds they deposit with the registry.
So, lets say Netfirms was to deposit assuming $100 thousand with Verisign, so base value of .com it gets from Verisin will be $4 and so on, if it deposits funds totune of $100thousand with .IN registry, it shall get .in domains at base slab of $6. If they were to despoit lesser funds, their base slab changes, so domain which was earlier priced to them at $4 by Verisign, shall now be priced at say $6 and soon. This is for all different domain registries they desposit funds with. So, price at which they get domain extensions from registries is decided by funds they despoit. It is called Total Receipts. What they get is basically provision to sale that many domains at price they wish to.
Now comes resellers. Like Registerfly was an year ago or many of those Directi resellers, similar price slab is passed on to them, so depending upon funds they despoit, they get discounted price BUT always over and above the price it costs to registrar.
Don't get confused. The hierarchy is :-
Registry <-- Registrar <-- Resellers <-- Sub-resellers
ICANN enters into agreement with Registries for domain extensions, like Internic or ernet is for .in, Verisign is for .com and so on.
Registrars approach diff. Registries and signup with them. If Registrars signs up with verisign only, then they can sell only .com and so on.
These registrars then have resellers and sub-resellers.
Registrars (level1) do not get domains for $6 (.com) always. If they deposit more funds, their base slab changes and thats how they get it cheap because volume sales is what they target and when they get it cheap, they are able to bring out greater discounts.
Registerfly last year became ICANN accredited and was independent registrar. Earlier it was reseller of Enom. And remember they started those $0.60 .info domains and so on. If we go by your assertion that domains are priced at say $4 for .info, then loss of $3.40 per .info domain and when millions got registered is some thing not reasonable. Also, remember .info aren't that valued either, so chances that people shall renew it is less, so the loss is going to be there more. Registerfly did not take a loss of $3.4/ .info registered then, otherwise what happened to them now, would have happened atleast eight months ago with company turning bankrupt and what more. Just to remind you, Directi is also offering .info for $0.99/first year, so is GoDaddy ($1.25 i guess). These companies do not take losses. If it is less than a cent, they could just offer it free and say charge $0.99 for second year, atleast they would have custoemr hooked on for two years, but it is not how things work.
They use promos from registries, increase their deposits to get better slabs and then roll out the schemes and offers to general public.
Thats what i had to share as far as cheap domains is concerned.